NEW YORK (AP) — U.S. stocks are drifting lower Tuesday after a report showed inflation was worse across the country last month than economists expected.
The S&P 500 fell 0.2% and gave back some of its big rally from the day before. The Dow Jones Industrial Average was down 212 points, or 0.4%, as of 10 a.m. Eastern time, and the Nasdaq composite was 0.1% lower.
Pressure from the bond market undercut stocks following the discouraging report on inflation. People had to pay prices for groceries, electricity and other costs of living that were even higher last month than economists expected. That could push the Federal Reserve to hike its main interest rate at its next meeting in December and beyond.
Higher interest rates can help rein in inflation, but they do so by making it more expensive for everyone to borrow money and by slowing the overall economy. Higher rates also make investors less willing to pay high prices for stocks and other investments.
One Fed official even hinted the central bank may increase the federal funds rate by double the typical amount next month because of how high inflation has remained for years.
Speaking in London before the inflation report was released, Fed Gov. Christopher Waller said “a stronger policy move may be needed” if the report showed an important underlying measure of inflation rose by 0.3% from September.
In that case, he said the Fed should consider hiking the federal funds rate by half a percentage point rather than the typical quarter point. Moving by only the usual amount could “put our credibility at risk, a risk I am not eager to take.”
Shortly afterward, Tuesday’s inflation report showed that the underlying measure of inflation Waller was worried about was exactly 0.3%, the threshold he had set.
That sent yields jumping in the bond market as traders upped their forecasts for coming hikes to rates by the Fed.
The yield on the 10-year Treasury jumped to 4.98% from 4.88% late Monday. That’s a notable move for the bond market, and the yield helps set where rates are for mortgages and other loans going to U.S. households and businesses.
The 10-year Treasury yield had been dropping since early October, when it topped 5.30% as worries spiked about high inflation, higher interest rates, the U.S. government’s big debt and other concerns.
Tuesday’s jump in yields came even though oil prices fell again. The price for a barrel of Brent crude oil sank 2.4% to $90.32. President Donald Trump said late Monday that the war in Iran, which sent oil prices much higher, “militarily is effectively over.”
Brent’s price has been falling from more than $112 at the start of the month amid uncertainty about what will happen with the war with Iran.
Jumps in Treasury yields push downward on prices for all kinds of stocks, and they typically most affect those seen as the most expensive. That’s keeping the focus on stocks tied to the artificial-intelligence boom, which soared to records in the frenzy around AI despite criticisms that they were in a bubble.
More recently, they’ve come under pressure on worries that Democratic victories in statehouses across the country last week could mean restrictions on further construction of AI data centers.
Nvidia fell 3.1% and was the heaviest weight on the S&P 500. The chip company has also been dealing with issues unrelated to the rest of the AI industry after its CEO, Jensen Huang, admitted to a relationship with a woman who, according to The New York Times, U.S. intelligence determined was gathering information for China.
Other stocks in the AI industry were mixed. GE Vernova, which is helping to power AI data centers, dropped 5.4%.
But Advanced Micro Devices rallied 5.5%. CoreWeave, a company that rents out access to AI chips to customers over the cloud, also held up better. It added 3.6%.
In stock markets abroad, indexes rose across much of Europe and Asia.
South Korea's Kospi jumped 4.4% for one of the world's biggest gains on strength for its two tech giants that have benefited from the AI boom, Samsung Electronics and SK Hynix.
AP Writers Elaine Lai and Matt Ott contributed to this report.
